Unemployment big picture is fuzzy

President Barack Obama’s push to extend unemployment benefits through next year could artificially raise the unemployment rate, giving his Republican rivals more fodder to attack his policies for helping the jobless.

Continuing the temporary benefits would have two conflicting effects, according to a recent analysis by Macroeconomic Advisers.

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The benefits would keep millions of unemployed from slipping into poverty and indirectly enable consumer spending, which would create 200,000 jobs next year, accomplishments Obama could tout on the campaign trail.

But the same analysis also shows that allowing for 99 weeks of benefits encourages the jobless to linger and expands a labor pool that would otherwise shrink. As a result, the current 9.1 percent unemployment rate has been elevated by roughly half a percentage point, said Macroeconomic Advisers senior economist Ken Matheny.

This phenomenon would most likely disappear if Congress fails to renew the extended benefits for another year.

“The big picture here is that all of this is temporary,” Matheny said. “Whatever these effects are will last as long as the benefits are in place.”

If the benefits lapse and the unemployment rate falls to the projected 8.6 percent, the economy would appear to have improved even if the underlying situation remains distressed.

Already, the artificially high number has helped stoke GOP critiques. House Majority Leader Eric Cantor (R-Va.) has repeatedly warned the president not to hike taxes with unemployment above 9 percent, while GOP presidential candidates unload with each monthly jobs number.

Part of the problem is that voters rely on an economic metric that does not accurately capture all of the dynamics at play, since the unemployment rate largely reflects only the number of people searching for work, not all those who have given up.

Unfortunately, the alternatives reveal a much deeper crisis that is harder to resolve.

Alan Krueger, the Princeton University professor chosen by Obama last month to be chairman of the White House Council of Economic Advisers, considers the employment-to-population ratio to be a much better measurement.

“This rate isn’t affected by whether someone is counted as in, or out, of the labor force,” Krueger wrote in a March op-ed for Bloomberg News.

Maurice Emsellem, policy co-director at the National Employment Law Project, said the unemployment rate masks reality.

“The real issue is how many people would be working if they could get jobs, especially with 2.8 workers now characterized as ‘marginally attached’ to the labor market and thus not counted in the standard unemployment rate,” Emsellem said. “Only 58 percent of the working age population is now employed, which is a record low [in] this economic downturn.”

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